Question

The net income reported on the income statement for the current year was $410,400. Depreciation recorded on store equipment for the year amounted to $17,470. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:

	End of Year	Beginning of Year
Cash	$39,800	$37,960
Accounts receivable (net)	31,820	27,630
Merchandise inventory	39,230	43,060
Prepaid expenses	3,750	4,820
Accounts payable (merchandise creditors)	39,770	35,040
Wages payable	20,280	24,950

Required:

A.	Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.
B.	Briefly explain why net cash flow from operating activities is different than net income.

Answer 1

A)
	Cash from operating activitieis
	net income for the year					410,400
	Adjustments to reconcile net income to cash
	from operating activities
	depreciation expense					17,470
	increase in account receivable					-4190
	Decrease in merchandise inventory					3830
	decrease in prepaid expense					1070
	increase in accounts payable					4730
	decrease in wages payable					-4670
	net cash flow from operating activities					428,640
B)	Net income is the first line item in cash flow statement, the net income
	is difference of revenue earned less expense incurred thus whether the
	revenues are recognised when earned and expense when incurred irrespective
	of when cash is received or earned
	however under cash flow statement non cash items like depreciation expense,
	amortization expense are added back to cash flow statement as these are
	non cash items
	hence the difference between the two